Part 2 of “Boom or Bust? Or something in between?”

Part 2 of a two part series published in Railway Strategies on 4 July 2012

“I believe that Government and the rail industry can and must do more for the passenger and the taxpayer.  So we will.”

That is a punchy statement of intent from the opening paragraphs of Government's March 2012 Command Paper “Reforming our Railways: Putting the Customer First”. 

As one would expect, Sir Roy McNulty's Rail Value for Money report features heavily in the objectives laid out in the Command Paper.  Equally the Command Paper lays the groundwork for the Government's upcoming July 2012 announcements on rail outputs and funding for the 2014-19 period. 

Everybody breathe in!

Further to the Command Paper, the High Level Output Specification (HLOS2) and Statement of Funds Available (SoFA), which are to be published by July 2012, will set out Government's plans in more detail.  The HLOS2 will set out the goals for the next Control Period (2014-2019).  The SoFA will set out the money available to achieve them. 

The Paper doesn't specify the sort of sweeping reforms one might expect in the wake of Sir Roy's Value for Money report.  However, there are some indications that the current models are in for some rigorous scrutiny. 

“There will always be a strong case for subsidy for services which deliver wider social and economic benefits but which would not be commercially viable without taxpayer support.  Like Sir Roy McNulty, we believe the rail industry needs to reduce costs in order to earn future growth: to continue to expand capacity and services for passengers and freight users.” 

To this end the Paper sets out four objectives:-

  • Securing value for the passenger;
  • Dealing with the fiscal deficit (acknowledged in the paper to be Government's primary overriding priority at the present time);
  • Supporting economic growth; and
  • Delivering the UK's environmental goals.

It's not (just) about the money

Although the SoFA will set out details of the funding available, Government take the opportunity to state five headline allocations for that funding. 

  • Additional capacity into cities at peak times.
  • Additional capacity on other parts of the railway.
  • Faster journey times, more frequent trains, and through journeys.
  • A more cost-efficient, lower carbon railway.
  • More reliable journeys and a better passenger experience.

Hands off our railways

The Paper outlines the new "strategic role" which Government (and the Office of Rail Regulation) will adopt in these fiscally challenged times.  In large part this ties back to the five funding allocations in the SoFA and is expected to be detailed fully in the HLOS2.  The approach is likely to include:-

  • More accountability and decision making to professionals running rail and industry generally. 
  • Support for "Community Rail".  (All aboard the Big Society!)
  • Reform of the franchise process, which has inadequate reward for cost reduction.

Less is the new More

The DfT, backed by the Rail Value for Money Study, believes that franchise reform must include measures, "to give train operators more commercial flexibility while continuing to protect the interests of fare payers" including:

  • longer franchises to give operators stronger incentives to invest;
  • more flexibility to configure services, but with the Government specifying a core level of service;
  • requirements for customer satisfaction and performance;
  • less intrusive day-to-day management by the Government but greater involvement of the ORR; and
  • a profit share mechanism to better ensure taxpayers’ interests are protected.

Efficiency sufficiency

It seems however from the Paper that the biggest shake up might be foreshadowed at Netwrok Rail, with stated requirements in the Paper:-

  • for strong incentives on Network Rail to ensure it delivers value for money on its funding;
  • that Network Rail’s direct customers – the freight and passenger train operators – should be able to hold it to account for its performance; that there are incentives on Network Rail to behave in a manner that promotes the interests of passengers and freight customers.

Ticketing that doesn't smart

In terms of the interests of passengers, a key theme in the Paper is the benefits to customers of implementing so-called "smart ticketing".  The key points of the Paper being:-

  • The Government will be specifying use of Smart Cards in new franchises (Indeed, funding of £45million for roll out was announced in the Chancellor's 2011 Autumn Statement.)
  • Use of ITSO as an alternative   Oyster is a proprietary product, which the DfT does not see as appropriate for National use.  However, the DfT see transferability of tickets between operators as a priority and to that extent has established ITSO, an open specification for smart ticketing.
  • Smart ticketing can be used to implement more flexible and efficient commuter periods.  Moving passenger loading from traditional peak periods and providing financial incentives to all parties for doing so is a Panacea to which the Government firmly prescribes.

Side by side with the Paper the Government also released a Rail Fares and Ticketing Review which continues on this theme in greater detail.

On a roll

Lastly the paper takes aim at the costs of rolling stock.  The Competition Commission recently concluded that the limited number of alternative fleets available when bidding for franchises and the "feast or famine" approach to orders for new rolling stock has made it difficult for the supply chain to deliver value for money.  The Paper promises that if value for money continues to be a problem then "more radical options" maybe be necessary.

The end of the line

So all in all one can surmise that for UK Rail, as with the rest of the nation's industries, the dreaded accountant's pencil is on the loose.  As the Paper puts it in the opening paragraph – "How do we improve and expand our rail network when money is tight?" 

How indeed!  Watch the boards for changes to upcoming services.